Tien and Jim 

Your Real Estate Partners

Loan-to-Value Ratio

 

             The loan-to-value or LTV is a ratio between the loan balance and the market value

             of a property expressed as a percentage.  For example, a property with a loan 

             balance of $400,000 and a market value of $500,000 has a Loan-to-Value Ratio of 

              80%. 

 

                                       Balance of Loans                           $400,000     

                       LTV   =   -----------------------    X   100    =     ------------   X   100   =    80%

                                         Market Value                              $500,000

 

             The Loan-to-Value Ration can be used to estimate the amount of equity you have in

             a property.  If the LTV for a property is 75%, your equity position in a property is 100

             minus 75 or 25%.  You can then multiply .25 times the market value to determine the  

             equity amount.

 

             Lenders may require mortgage insurance on loans with LTV's that are greater

             than a predetermined amount, usually 80%.  This means that the purchaser of 

             a property will need to put a minimum of 20% down to avoid paying mortgage

             insurance premiums.  Mortgage insurance is a premium amount which is added

             to the monthly mortgage payment.

 

             The Loan-to-Value Ratio is also used when an investor wishes to refinance a

             property.  For example, you have owned an investment property for a number of

             years and you would like to refinance the property to take cash out.  Most lenders

             will allow a maximum of 75% the appraised value for the new loan amount.  

             Lenders who refinance at LTV's greater than 75% will usually charge less

             favorable interest rates.